Q. In recent months, a sharp decline in revenue has forced us to consider downsizing. What are the legal risks associated with a layoff and how can we minimize them? —L.C., Hawaii
A. The legal risks include discrimination and breach-of-contract claims. To minimize these risks, it pays to be systematic about the process.
First, freeze hiring and promotions now that you are thinking about the need for a layoff. If the layoff occurs, continue the hiring and promotion freeze for at least six months to validate the layoff.
Next, determine the business goals of the layoff. Decide how many positions will be cut in each department and the criteria for those layoffs. The criteria should be as objective as possible. Make sure the changes will accomplish the stated goals. When possible, appoint a layoff selection committee composed of managers of diverse races, sexes and ages to help ensure balance and fairness.
Once the selection committee has made its selections for layoff, the company should, together with legal counsel, conduct a “disparate impact analysis” to determine if the cuts fall unevenly on a certain class of workers. If appropriate, the company should then make any adjustments to its layoff selections to avoid discrimination against protected groups.
Note: Federal law says that if your company employs 100 or more employees, it may have to give more advance notice about impending layoffs. Hawaii's plant closings law applies to employers of 50 or more persons. Check your state statute.
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